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YOUR HOME; Disposing Of a Paid-Up Mortgage

BEFORE consigning your paid-off mortgage to the ash heap, real estate lawyers say, it would be wise to consider whether you should blow out that match. For, they say, it's possible that a mortgage from the past can return to haunt you.

''I'm not in favor of burning important documents,'' said Douglas Wasser, a Manhattan real estate lawyer. ''You never know when you might need them.''

The prime reason, he said, is because the original mortgage may be needed if the lien against the property has not been recorded as removed.

Mr. Wasser explained that one of the reasons lenders consider mortgages safe investments is because the borrower's promise to repay the loan is backed by a pledge of the borrower's property -- a house, for example -- as security. Since houses can be sold, however, the lender wants to make sure that anyone thinking about buying the house will know there is a mortgage already on it. And that is done, Mr. Wasser said, by recording the mortgage.

''Recording means that the document is filed with the county clerk and that it is a matter of public record,'' he said. When a mortgage is recorded in New York, Mr. Wasser said, the original document is photographed and stored on microfilm. The location of the document on the microfilm is then recorded in an index to make it easy to locate the microfilmed image.

The problem, however, is that even after a mortgage is paid in full -- or ''satisfied'' -- and the original document has been burned, trashed, filed or lost -- the photographic image on the microfilm persists.

So what to do?

''You have to discharge the mortgage of record,'' said John G. Hall, a Staten Island lawyer who is past chairman of the real property section of the New York State Bar Association. What that means, he said, is that when a mortgage is paid in full, another document must be filed directing the county clerk to note on the records that the mortgage has been satisfied. That document is known as a ''satisfaction of mortgage.''

''Theoretically, the filing of the satisfaction shouldn't be a problem,'' Mr. Hall said, explaining that in New York, lenders are required to prepare the satisfaction of mortgage and file it with the county clerk or send it to the borrower if requested.

While that may seem to be a satisfactory way to end the matter, Mr. Hall said, it doesn't always work because people who receive a satisfaction of mortgage in the mail do not always file it with the county clerk. And, even more problematic, he said, is the unfortunate reality that not every lender is aware of New York's requirement to provide the satisfaction-of-mortgage document.

''When your mortgage has been sold four or five times, and it's now owned by a lender in Topeka, Kan., the lender may not do anything at all after the mortgage is paid,'' Mr. Hall said. In fact, he said, it is becoming increasingly common for lenders to claim they are unable to locate the original loan documents.

Accordingly, Mr. Hall said, homeowners who have paid off their mortgage should be diligent about making sure they receive from their lender a satisfaction-of-mortgage form and that the form is properly filed with the county clerk.

Even in cases where a mortgage is paid off as the result of a refinancing or sale of the property -- events typically conducted with the assistance of a lawyer -- the borrower should make sure that the satisfaction, or release, of mortgage has been filed.

''We never get rid of a file anymore,'' said William Selsberg, a Stamford, Conn., real estate lawyer. ''Most lawyers today are constantly chasing lenders to get them to send in the release after the mortgage has been paid.''

Mr. Selsberg said that homeowners who pay off their mortgage should contact their lender -- or the institution to which they are currently sending payments -- to ask for a satisfaction or release of the mortgage after the last payment has been made. And those who have sold their property or refinanced their original mortgage should confirm with the lawyer who handled the sale or refinance that the original mortgage has been noted on the records as having been satisfied and released.

''You should give the lawyer a decent amount of time to get the release recorded before you start hounding him,'' Mr. Selsberg said, adding that two months should suffice.

Lee B. Roth, a New Jersey real estate lawyer, said that when a mortgage is paid off in New Jersey, the document used to release the lien on the property can be either the original mortgage itself or a form known as a ''discharge of mortgage.'' When the original mortgage is used, Mr. Roth said, the lender will indicate somewhere on the document that the mortgage has been paid in full and may be ''canceled of record.''

Whether a discharge of mortgage or the original mortgage itself is to be used to release the lien, he said, the document must be sent to the county clerk -- or registrar, in some counties -- for recording.

Mr. Roth added that in addition to making sure that fully-paid mortgages are canceled, discharged and/ or satisfied of record, borrowers should also advise the local tax collector and the homeowner's insurance company to send future bills to the homeowner.

''Presumably, the insurance and tax bills were being sent to the lender,'' he said, explaining that lenders generally insist upon making such payments while there is a mortgage on a property.

Mr. Wasser, the New York real estate lawyer, said that there was one other document that borrowers -- or their lawyers -- should insist upon receiving from the lender: the original promissory note.

''Once you have the satisfaction of mortgage recorded, and you have the promissory note safely in your hands, you're in good shape,'' he said. ''And if you still feel you have to burn something, burn copies.''